Self-interest rate running high at banks
The same institutions that are gobbling up billions in taxpayer bailout money are dishing out hefty interest-rate hikes and sneaky charges to ordinary customers, writes Louise McBride
IT'S over two years since the first bank bailout of September 2008, when the Government threw a €400bn lifeline at the Irish banks. A few massive bank bailouts later, we're still in deep water.
Last week, it emerged that international investors believe the Irish Government has more of a chance of going bust than the Argentinian one does.
Ireland's ranking below Argentina shows just how low our reputation has sunk. It's no surprise, then, that the Irish banks and the Government are paying through the nose to borrow money from foreign investors. But they're not the only ones paying over the odds to borrow money.
Over the past two years, Irish banks have lobbed a raft of interest-rate hikes and hefty new charges on to their customers.
Many banks have ratcheted up their interest rates on personal loans over the past year -- even though the European Central Bank (ECB) rate, which largely determines the interest you pay on your borrowings, has remained at an all-time low of 1 per cent since May 2009.
AIB has pushed up the interest rates on many of its personal loans by between 17 and 27 per cent over the past year. For example, if you borrowed €25,000 or more from AIB in November 2009, the interest rate on your loan was 7.26 per cent. If you borrow the same amount today, you'll pay 9.27 per cent interest. Even if you only borrow a modest sum of €2,000 from AIB, you'll be hit with a whopping interest rate of 13.59 per cent -- back in November 2009, the rate was 11.56 per cent.
Bank of Ireland has increased the interest rate on personal loans of €25,000 or more from 9.97 per cent to 10.97 per cent over the past year. If you're borrowing between €5,000 and €8,999 from Permo, you'll pay 12.25 per cent interest today, compared to 10.4 per cent last November.
Of course, those taking out personal loans aren't the only borrowers feeling the heat. If you've got a standard variable mortgage, chances are you've been hit with a series of interest rate hikes over the last year.
Permo got the ball rolling when it increased its standard variable rate by 0.5 per cent in July 2009 -- followed by another 0.5 per cent interest last February and a similar increase last August. AIB increased its standard variable rate by 0.5 per cent last August.
Bank of Ireland increased its rate by 0.5 per cent last April -- and by another 0.45 per cent last August. EBS increased its standard variable rate by 0.6 per cent last May -- and by another 0.6 per cent last August.
Banks have also propped up their interest rates on overdrafts.
Bank of Ireland's overdraft interest rate was 11.75 per cent on November 1, 2009 -- today, it is 12.75 per cent. The overdraft rate on Permo's Switch current account was 13 per cent last November -- today, the rate on its Everyday account is 14 per cent.
Ulster Bank has increased its overdraft rate from 13.55 per cent to 14.55 per cent over the last year.
Rate hikes for going into the red shouldn't be ignored. If you've run up an overdraft of €5,000 with Bank of Ireland for example -- and you still owe that €5,000 a year from now, the interest on that overdraft adds up to about €669 -- almost a seventh of what you borrowed, according to Ronan Coburn, a forensic accountant and banking consultant with The Bottom Line.
The interest charged on your credit card bill can be as high as 23 per cent -- almost 23 times the ECB rate. As if interest rates like this aren't enough to worry about, the banks have started to pull other credit-card tricks.
If you've got an AIB credit card and are in the habit of only paying off a fraction of your bill each month -- or of being a few days late repaying your bill, watch out. From this January, you could have to pay an extra month's interest on unpaid bills. For example, if you have €1,000 to repay on your credit-card bill this January, but you only pay off €800, the €200 you haven't cleared will be carried over to your February bill -- and lobbed with interest for that month until you repay it.
NO MORE GET-OUT-OF-JAIL FREE CARDS
If you've run up a massive bill on your credit card, an interest-free balance transfer offer could be your get-out-of-jail-free card.
These offers allow you to transfer your credit-card bill to another provider without paying interest for a few months. So, if you're determined to clear a credit-card bill within six months, you could transfer it to another provider and repay it within those months -- without having hefty credit-card interest pushing up your bill even more.
However, to get an interest-free balance transfer offer from an Irish bank, you must head to the only one that didn't receive government bailout money -- Permanent TSB. Permo's Ice card has a six-month interest-free offer. True, EBS Building Society offers a card with a 10-month interest-free offer, but this card is issued by MBNA, which is part of the international Bank of America.
Last March, Bank of Ireland pulled the six-month interest-free offer on its Clear and 2-in-1 credit cards. The interest charged on 12-month balance transfers to its Platinum Advantage card was also increased -- from 2.9 per cent to 3.9 per cent. In January 2009, Ulster Bank pulled a nine-month interest-free balance transfer offer on its credit cards. In June 2009, National Irish Bank withdrew its five-month interest-free offer.
These credit-card changes come on top of recent credit card interest rate hikes. Last May, AIB increased the interest rate for credit-card purchases on its Click card from 8.5 per cent to 9.5 per cent last May, while the rate on its low-interest MasterCard was increased from 14.4 per cent to 15.4 per cent.
About three-and-a-half years ago, AIB charged 12.67 per cent interest if you used its Platinum card to withdraw cash. This rate has since climbed to 23.4 per cent. If you withdraw €1,000 on AIB's Platinum card today and you don't manage to repay that bill within a year, the interest bill on your card will add up to €239.42, according to Coburn. If the old rate of 12.67 per cent still applied to your card, the interest bill would be almost half that, at €125.23.
Last June, Bank of Ireland (BoI) introduced 10 interest-rate rises on various credit cards. One of the biggest hikes was on BoI's Platinum Advantage card, where the interest rate on cash withdrawals increased from 16.5 per cent to 23.2 per cent -- a jump of about 41 per cent.
Many banks have also lobbed hefty charges onto their credit cards over the past couple of years. In October 2008 -- about a month after the first bank bailout, holders of the Bank of Ireland Platinum Advantage card were hit with two new fees -- a €7.50 late-payment fee if they were late paying their credit card bill, and a €7.50 fee if they went over their credit limit.
In December 2008, Permo introduced a late payment fee of €7.50 on its Ice card -- previously, it hadn't imposed this charge.
Ulster Bank has more than doubled its unpaid-item fee, charged when you don't have enough money in your account to clear a credit-card transaction, from €3 to €7.